FTC Issues Long-Awaited HSR Rules, Reinstates Early Termination

On October 10, 2024, the Federal Trade Commission (“FTC”), with concurrence of the Antitrust Division of the Department of Justice, finalized its June 2023 rulemaking amending the premerger reporting and notification rules under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR Act”). The new rules will take effect 90 days after publication in the Federal Register and will likely become effective in January 2025. While significantly pared back from the original proposal, the new rules introduce new disclosure requirements for all types of transactions, including expanded Item 4(c) production, and require significantly more disclosure in transactions where competitive overlaps or vertical relationships exist.

The final rule can be found here.

Concurrently with the new rules, the FTC announced the reinstatement of the “early termination program,” which has been suspended since February 2021, again allowing for clearance of certain transactions ahead of the statutory 30-day waiting period for a typical M&A transaction. The program will be reinstated when the new rules go into effect.

The following summary of the key rule changes is not comprehensive but illustrates the significant changes.

Additional Information Required from All Filers (except “select Section 801.30 transactions,” as described below)

Parties will need to provide additional information in their HSR filings, but, as with the current filing requirements, some information is limited to the acquiring person, including:

• Detailed transaction structure and information about parties to the transaction. Filers will need to disclose the filer’s ownership structure, including, with respect to the acquiring entity, certain minority interest holders of the acquiring entity and any entities that, directly or indirectly, are controlled by, or that control, the acquiring entity, as well as entities within the acquiring person created to effectuate the transaction. With respect to the acquired entity, filers will need to disclose certain minority holders of the acquired entity and any entities that, directly or indirectly, are controlled by, or that control, the acquired entity but only if they will continue to hold an interest in such entities or, as a result of the transaction, will acquire an interest in an entity controlled by the acquiring person.  In the case of limited partnerships, this will include identification of 5% or greater limited partners if they have certain management rights. Certain acquiring persons will also need to disclose existing organizational charts, if available.
• If the executed agreement is not the definitive agreement, filers will need to submit a dated document that provides sufficient detail about the scope of the entire transaction (i.e., an agreement in principle, or term sheet, or the most recent draft agreement) and provide information regarding the identity of the parties, the structure of the transaction, the scope of what is being acquired, the calculation of the purchase price, an estimated closing timeline, employee retention policies, including with respect to key personnel, post-closing governance, and transaction expenses or other material terms.
• Narrative responses that include descriptions of business operations within the acquiring person, as well as the target.
• Officers and directors of the acquiring entity, entities that directly or indirectly control or are controlled by the acquiring entity, and entities within the acquiring person that have or will be created in furtherance of the transaction. (Additional officers and directors are required for transactions reporting competitive or supply overlaps.)
• Expanded Item 4 documents. Although the rules eliminate the requirement to provide drafts of Item 4 documents, they have expanded the scope of transaction-related documents under Item 4(c) and (d) to include those prepared by or for a supervisory deal team lead, defined as an individual with day-to-day responsibility for leading the transaction.
• Changes to NAICS code(s) and revenue reporting. The rules eliminate the requirement to report revenue by NAPCS codes (manufacturing codes), change the requirement such that only an estimated revenue range is needed for each reported NAICS code, and add the requirement to disclose the operating business(es) that derive revenue in each reported NAICS code.
• Transaction rationale and diagrams. A description of the transaction that includes timelines and strategic rationales with support from the Item 4(c) and 4(d) documents and a transaction diagram, if it exists.
• Verbatim translations of all foreign-language documents (currently, if a translation does not exist, creation of a translated copy is not required).

Additional Information in Deals with Horizontal or Vertical Competitive or Supply Overlaps (except “select Section 801.30 transactions,” as described below)

In transactions involving horizontal relationships (e.g., where the parties are actual or potential competitors), the following additional information will be required:

• Narrative discussion of horizontal competitive overlaps, similar to what many foreign competition authorities currently require, including the identification of each current or known planned product or service of the acquiring person that competes with a current or known planned product of the target, as supported by accompanying filing documents. Parties will need to take affirmative positions in their filing on the nature and extent of the competitive interaction, but the acquiring person and the acquired person should not exchange information for purposes of answering this item.
• Officers and directors of the entities within the acquiring person (including those who have served in one of these positions within the three months before filing that also serve as an officer or director of another entity that derives revenue in the same NAICS codes reported by the acquired entity) that have responsibility for the development, marketing, or sale of products or services that overlap with that of the acquired entity or are engaged in supply relationships with the acquired entity.
• Production of strategic plans, business reviews, and any other regularly prepared plans or reports provided to the Chief Executive Officer and Board of Directors of the acquiring entity (or any entity it controls) that involve discussion of Item 4(c) topics (i.e., market shares or competition) with respect to overlap products. The obligation is limited to such documents produced within the past year.
• Prior Acquisitions. The rules modify the reporting of prior acquisitions (within 5 years of the filing), including requiring lists from both the acquiring and acquired persons, specifically in any areas of NAICS code overlap or otherwise described in the narrative overlap.
• Top customers and suppliers and license and supply agreements. In certain areas of competitive overlap and certain types of supply relationships, parties will need to disclose the top 10 customers (or suppliers) (measured in dollars) and any supply or licensing arrangements for each such customer or supplier.
• Street-address-level geographic market information for certain NAICS code overlaps (the new rules modify which codes require this level of reporting) and a list of locations where franchisees of the acquiring or acquired person (as appropriate) generate revenue in overlapping industries that require street-address-level reporting.

In transactions where the parties have an actual or potential vertical relationship -- where one party sells products or services to the other party, or to its competitors, or both -- additional information will include:

• Product and Customer and Supplier Lists for Products Sold. Parties will need to list of each product, service, or asset that either party has sold, licensed, or otherwise supplied in the previous fiscal year (subject to certain dollar limitations) (1) to the other party, or (2) to any other business that uses its product, service, or asset to compete with (or as an input for) the other party’s products or services.
• Sales data. The parties will also need to provide sales data by dollar figure and the company names for the top 10 customers of such product, service, or asset along with a description of the agreement it has with the customer.
• Product and Customer and Supplier Lists for Products Purchased. Parties will need to provide similar disclosure with respect to each product, service, or asset purchased from (1) the other party, or (2) other businesses that compete with the other party in the development, product or sale of the relevant product, service, or asset. This includes the identity of the top 10 suppliers of the relevant product, service, or asset, as well as a description of the purchase or licensing agreement(s).

Other New Required Information or Disclosures

Additionally, the rules will now require additional categories of information, including:

• Disclosure of subsidies and countervailing duties from certain foreign governments or entities of concern (or, in the case of countervailing duties, certain “covered nations”) – which include China, Russia, Iran, North Korea, and any foreign terrorist organization designated by the Secretary of State – within two years from the date of the filing.
• Disclosure of defense and intelligence contracts of the acquiring person (except for select 801.30 transactions) but limited to contracts generating more than $100 million of revenue and only if there is an overlap or supply relationship between the filing parties.
• Identification of other agreements between the filing parties within one year of the filing (but not the agreements themselves).
• Mandatory identification of any foreign jurisdictions in which the parties will submit pre-merger notifications (but limit disclosure to the acquiring filer).
• Allowing filers the opportunity to provide voluntary waivers permitting the FTC and Department of Justice to disclose certain information to specified state attorney generals and international competition authorities.

Excusing “select Section 801.30 transactions” filers from providing certain additional information

The new rules would excuse “Section 801.30 transactions” filers from certain reporting requirements. Section 801.30 transactions are those in which the consent of the acquired person may not be required, including acquisitions made on the open market, via tender offers, through the exercise of warrants or options, or through the conversion of non-voting securities. Select Section 801.30 transactions are those transactions that do not result in the acquisition of control to which Section 801.30 applies and where there is no agreement or contemplated agreement between any entity within the acquiring and acquired person. An example of a select Section 801.30 transaction is an acquisition of voting securities on the open market via a national exchange by an investor that has no other ties to the issuer and which acquisition does not result in the acquisition of control.

Key Takeaways

Parties likely to make HSR Act filings involving competitive deals may want to consider whether and how these new reporting obligations would affect not only their deal processes but also their processes for generating ordinary-course Board and business-level documents which may need to be produced as part of the expanded scope of responsive documents (i.e., periodic reports).

Current HSR Act filings require one to three weeks of work prior to submission, but the final rules will likely substantially increase the time required to prepare the filings, especially among first-time filers and those who will need to collect a larger range of information that is usually not maintained in the ordinary course of business. Therefore, before the final rules become effective, potential filers should work closely with deal and antitrust advisors to understand the nature and scope of these changes under the new premerger notification program rules and the implications for their dealmaking processes, document creation practices and flow, and HSR information and document collection practices.

If you have any questions about the final rules or how the final rules may impact your business, please contact your Ropes & Gray attorney. 

Key Takeaways at a Glance

Additional Information Required from All Filers (except “select Section 801.30 transactions”)

Detailed transaction structure and information about parties to the transaction	Expanded disclosure of acquiring person’s structure and minority shareholders or interest holders, including for limited partnerships
Filing on a preliminary agreement	Filers will need to provide a more robust preliminary agreement if not filing on a definitive agreement
Narrative description of businesses within acquiring person	New requirement to describe, in narrative form, the business operations of the acquiring person
Officers and directors	New requirement to disclose officers and directors of certain entities
Expanded scope for Item 4 documents	Expanded scope of custodians to documents prepared by or for a supervisory deal team lead
NAICS code and revenue reporting	Changed NAICS code and revenue reporting, including identifying the operating business deriving revenue in each reported code
Transaction strategic rationale(s) and diagram	New requirement to provide the strategic rationale(s) as supported by Item 4 documents and a transaction diagram, if available
Translations of foreign-language documents	New requirement to submit verbatim translations of any foreign-language document

Additional Information in Deals with Horizontal or Vertical Competitive or Supply Overlaps (except “select Section 801.30 transactions”)

Narrative discussion of horizontal competitive overlaps	New requirement to identify each current or known planned product or service of the acquiring person that competes with a current or known planned product of the target
Officers and directors	New requirement to disclose officers and directors of certain entities with certain competitive overlap
Expanded scope for Item 4 documents	Expanded scope of responsive Item 4 documents to include regularly prepared plans and reports provided to certain officers and directors
Prior acquisitions	Expanded scope for reporting prior acquisitions, including by the acquired person
Top customers and suppliers and license and supply agreements	New requirement to disclose certain information relating to customers and suppliers in filings reporting horizontal or vertical overlap
Street-address-level geographic market information	Expanded requirement to report street-address-level market information for certain reported NAICS codes overlaps
Product and Customer and Supplier Lists	New requirement to disclose certain product and customer and supplier lists and other information in filings reporting certain overlaps

Other New Required Information or Disclosures

Foreign subsidies and countervailing duties	New requirement to disclose certain subsidies and duties from certain foreign governments or entities of concern
Defense and intelligence contracts	New requirement to disclose certain defense and intelligence contracts
Identify other agreements between filing parties	New requirement to identify (but not produce) other types of agreements between the parties
Mandatory identification of any foreign jurisdictions	New requirement to disclose other premerger or competition filings in foreign jurisdictions
Voluntary waivers of confidentiality protections	New ability to voluntarily waive confidentiality protections to allow the FTC and DOJ to share information from the filing with specified state attorneys general and foreign competition authorities